Company car guide: glossary
Do you know your P11d from your PHEV? Well, don't worry if you don't, because this is your A to Z of driving on business...
Advisory fuel rates
These are the amounts you can claim for using your company car on business trips to cover the cost of fuel. The rates are reviewed quarterly and vary depending on the type of fuel a car uses and its engine capacity. There's a separate rate for electric vehicles (EVs).
Battery electric vehicle. Over the past couple of years, these have become hot property in the company car market, as favourable tax rates make electric cars extremely cheap for a company car driver. For the 2021/22 tax year, a pure electric vehicle is in the 1% tax band, making a high-performance EV cheaper in tax than a small hatchback with an internal combustion engine. However, your employer still needs to be willing to pay the monthly leasing bill, which will almost certainly be much higher than the cost of a conventionally powered car of similar size.
Benefit-in-kind. This is Her Majesty's Revenue & Customs' (HMRC's) term for any benefit you receive on top of your salary. If, for example, your company supplies you with a car that you can use outside of work, that's considered a benefit, and you pay tax on the value of that benefit: hence benefit-in-kind tax. The amount of tax you pay depends on the value of the car and its CO2 emissions. If the car is a diesel, whether it meets the latest emissions standard is also a factor. If it's a plug-in hybrid, then the car's all-electric range is another contributor to the car's tax banding.
Some employers may offer you an allowance towards buying and running your own car as an alternative to a company car. On the plus side, you're not restricted to the list of cars your company is happy to supply. On the minus side, any unexpected bills will be down to you. You should also keep in mind that you will be taxed on your car allowance at your income tax rate.
Diesel cars have come to be perceived as 'dirty' compared with petrol-powered models. While the reality is not so clear cut, a 4% surcharge has applied since 2018 (before that, the diesel penalty was 3%). Only cars which meet the latest RDE2 emissions standard (explained below) are exempt from the surcharge. Since January 2021, all new cars have been required to meet the RDE2 standard, so the surcharge will only apply to cars registered before this date.
The 'grey fleet' is a term for private cars used for business purposes. They're not company cars, but they're not merely private vehicles either. There are some advantages to running a 'grey' car rather than a company car. It's up to you what car you own, so if you want a car that your employer wouldn't be happy to supply then you have that independence. However, general maintenance costs will be down to you, rather than covered by your employer. What's more, your employer may not be keen on you driving your own car for work purposes if it's an older vehicle lacking in modern safety equipment. If you plan to claim fuel on expenses, they may also be unhappy if the car has high fuel consumption.
Your income tax band is important in determining your benefit-in-kind tax bill for running a company car. That's because you are taxed on the benefit of having the car at your income tax rate. Earnings between £12,501 and £50,000 are taxed at the basic rate of 20%; £50,001 to £150,000 is taxed at 40%; more than this sees the rate increase to 45%.
Mileage allowance payments. These are the amounts you can claim towards the cost of running your own car on business without being taxed. For the first 10,000 miles in a tax year, you can claim 45p per mile. Once over 10,000 miles, the rate drops to 25p.
Short for New European Driving Cycle, but in reality this emissions test standard is anything but new. Last updated in 1997, it has been phased out in favour of WLTP (see below). Carbon dioxide figures derived from the NEDC standard are still used for tax purposes for cars registered before 6 April 2020.
Strictly speaking the P11d is a tax form, but the term is used to describe the value of a company car for tax purposes. This is the list price, including delivery charges, the cost of options, and VAT, but excluding the first year's car tax and the registration fee.
PHEV is short for plug-in hybrid electric vehicle. BIK rates heavily favour PHEVs over petrol and diesel cars, especially if they can travel a healthy distance on electric power alone.
Laboratory-based emissions testing of new cars is now complemented by on-the-road tests. These are called the Real Driving Emissions tests. This extra testing was introduced alongside the WLTP lab tests (see below) to check that cars don't produce significantly more pollutants in real-world conditions than in a laboratory. RDE2 refers to the second-generation RDE standard, which allows an engine to emit 1.5 times the amount of NOx emissions permitted in laboratory testing.
All company cars are grouped in tax bands based on CO2 emissions. Range is also a factor for plug-in hybrid vehicles, while for a diesel car the rate will vary depending on whether the car meets the RDE2 emissions standard (see above). For the 2021/22 tax year, rates range from 1% to 37%.
Worldwide harmonised Light vehicle Test Procedure. This is the test now used to determine a car's official fuel economy and emissions figures, introduced in stages from 2017. It replaced the old NEDC protocol, which had been widely criticised for results which promised levels of fuel economy that were almost impossible to get neat in real-world conditions (take a look at the What Car? True MPG tests for an independent view of a car's fuel efficiency). WLTP improves upon NEDC with a longer test covering a wider variety of driving conditions. Car makers must now publish WLTP CO2 emissions as well as WLTP fuel economy figures for all new cars.
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